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On Mission Drift In Microfinance Institutions

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Executive Summary

This paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as "Mission drift": A tendency reviewed by numerous microfinance institutions to extend larger average loan sizes in the process of scaling-up. The authors argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty-oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of "Progressive lending" nor because of "Cross-subsidization" but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific clientele parameters.

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